WO2004/040422 of Electronic Broking Services Ltd describes a prime brokerage system. Prime brokerage is also described in WO2004/001533 of FX Alliance LLC. Prime brokerage, as a concept, has existed for many years and involves a party with credit trading on behalf of a party without credit for a fee. Thus, if bank A wishes to trade with Bank B but has no bilateral credit with bank B, bank A can use the services of bank C who has bilateral credit with bank B. Bank C will enter into a transaction with bank B and charge bank A a fee for trading on their behalf.
Both WO2004/040422 and WO2004/001533 disclose ways in which prime brokerage can be integrated into an anonymous automated trading system. Anonymous trading systems are well known in the art. One example is the EBS system operated by EBS Group Limited of London, UK to trade foreign exchange spot currencies and precious metals in the interbank market.
The system of WO2004/040422 enables traders at an institution to trade through a prime broker bank, giving them access to prices they would not otherwise be able to see. The prime broker bank enters into a deal with the counterparty and then executes a deal for the same amount with the party on whose behalf they have traded. That latter deal may be at a favourable price to the prime broker bank so that the prime broker bank can make a profit out of the transaction, alternatively, the prime broker bank may charge a fee for making its credit available to their customer bank.
The prime broker customer, that is the bank that uses the prime broker's credit, actually logs onto the system as the prime broker. They may log onto a specific prime broker deal code which is a virtual code shared by prime broker customers. This deal code will be seen as the counterparty to prime broker trades by third parties and will be seen as one of a number of trading floors operated by an institution. Other trading floors will be real trading floors at various locations around the world. Within the system, all the trading floors, whether real or virtual, have the same status.
Alternatively, there may be no prime broker deal code and the prime broker customer logs onto, and trades as, the prime broker bank. Counterparties cannot even see whether they have traded with the bank's own trading floor or with an unknown third party via the bank acting as a prime broker.
A different approach to increasing liquidity is disclosed in WO97/22072 of Reuters Limited. Rather than using a prime broker, name switching is used. The system waits until it can see that a potential deal exists were it not for a lack of credit and then switches the identity to one of the parties to the deal to a party who has credit to do the deal. The parties to the name switch can then reconcile their positions with each other. This approach requires constant monitoring of all bids and offers, credit limits and ownership of quotes in order that name switch opportunities can be identified. It is more suited to a host system architecture where all bid and offers are matched, executed and credit checked at the same location.
We have appreciated that there are aspects of the existing proposals for offering prime brokerage on trading systems which are not satisfactory. These problems relate to the relationship between prime broker banks and their customers, and the manner in which the trading system handles and identifies these relationships.